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Government Versus Market: False Contrasts at the NYT
The NYT pushed the old "government versus market" line in an article about Senator Clinton's economic positions. At one point the article tells readers that "Mrs. Clinton put her emphasis on issues like inequality and the role of institutions like government, rather than market forces, in addressing them."
Of course it was not market forces that led to the rise in inequality in the last quarter century, it was deliberate government policy. High on the list of government policies that promoted inequality are trade deals like NAFTA, which were designed to put non-college educated workers in direct competition with low-paid workers in the developing world, while keeping in place, or increasing, the barriers that protect the most highly educated workers. The predicted and actual effect of such agreements is to redistribute income upwards.
In presenting this contrast of government versus market, the article also notes the explosion in CEO pay, throwing in the assertion that "it is difficult to reduce such pay with new laws." Actually, it is easy to imagine laws that could have a large impact on curbing excessive CEO pay.
Current laws on corporate governance allow insiders (like CEOs) to plunder corporations in ways that do not seem occur in other countries. It is possible to rewrite the laws on corporate governance to prevent such insider abuse. For example, the law could require that the compensation packages for the top executives are sent out for shareholder approval at regular intervals, and only the votes actually returned are counted in the election. (Currently, management is allowed to count unreturned proxies as supporting their position.) The laws on corporate governance exist to prevent the sort of insider abuse that we are now seeing in the United States. The explosion in CEO pay presents strong evidence that these laws need to be modernized.
--Dean Baker
COMMENTS (5)
It's not just a coincidence that the current financial crisis is rooted in the perverse compensation schemes of Wall Street. Over the last few years mind-boggling amounts have been paid out there -- not just to CEOs but everyone up and down the line -- in bonuses based on "profits" that are now revealed as ruinous losses. But not only can the bonuses not be taken back, we are told by the banks that the people who did these deals are so incredibly valuable, so vital to retain as employees, that the banks must continue to pay huge bonuses even in the face of losses, and so must sell off significant fractions of corporate ownership to foreign interests to shore up capital even as they pay out comparable amounts in bonuses.
Of course, one way to stop this insanity would be to allow those badly-managed banks to fail -- but that would have required that we have antitrust laws or other regulations that would have prevented them from merging to "too big to fail" size ....
Posted by: jm | January 21, 2008 12:15 PM
Government policies, which include legislative, judicial and regulatory policies, have also played a major role in the decline of unions which has contributed to the rise of inequality.
Posted by: Rudy Fichtenbaum | January 22, 2008 11:53 AM
Rudy, couldn't have put it better myself!
Posted by: Wynand | January 22, 2008 5:37 PM
Rudy, Wynand,
How many people out there do you think know the words to "Union Maid" let alone to "Solidarity Forever"?
If asked what union movement popularized the song "Solidarity Forever", I'd be willing to bet that 98% of Americans would say "What's that song?" and the other 2% would say, "I don't know. Poland's maybe?"
We need a strong union movement to counter balance corporate/employer power even if we are able to reinvigorate corporate governance, anti-CEO compensation issues, opposition to Wall St greed, etc., etc.
Posted by: Ethan | January 23, 2008 12:34 AM
Ethan wrote, We need a strong union movement to counter balance corporate/employer power even if we are able to reinvigorate corporate governance, anti-CEO compensation issues, opposition to Wall St greed, etc., etc.
Not really. That's the Marxist fallacy---the capitalist is the opponent of the working man.
The truth was espoused by Henry George---people who work for a living are enslaved by landowners. Why? Because landowners didn't create the wealth inherit in land, but they make everyone else pay them to use it. Land rent probably comprises 10--20% of GDP.
The real path towards equality lies in drastically increasing taxes that fall on land value (and recouping the value of minerals extracted, the full value of radio spectrum, etc), and cutting taxes that fall on economic activity, like sales taxes and income taxes. (Yes, even some not-so-wealthy people pay income taxes.)
Posted by: liberal | January 23, 2008 1:39 PM